US government credibility going down the tube?

Colleges & Universities University of Michigan
1

<p>I was looking at some september charts and realized that 30 year T-bill > Libor implied forward at certain times…</p>

<p>So Libor = cost of money + risk factor</p>

<p>Since T-Bill is generally assumed as riskless</p>

<p>Libor = T-Bill + risk factor</p>

<p>However, Libor < T-Bill</p>

<p>That means T-Bill + risk = Libor in this scenario…</p>

<p>Does this imply that the US government is no longer preceived as the rock solid risk-less borrower?</p>

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<p>You’re last statement is the reverse.
I think you meant to say Libor + risk = T-bill</p>

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<p>sorry typo :-p …</p>

<p>actually it should be Libor + ADDITIONAL risk = T-bill?!?!</p>

<p>anyway any thoughts? does this imply even the slightest possibility of a US default?</p>

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<p>I know nothing about econ, but your logic definitely suggests that. and with the growing debt, i think we’re headed to defaulting on it.</p>

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<p>Interesting to note though that the US credit swap/default risk rating (CDS) has soared over the past several months, ever since the first investment firms went down and the government started to bail out the finance sector. I think the last time I checked the CDS of US gov’t bonds was higher than Germany’s, which isn’t necessarily good news. </p>

<p>On the other hand, China (probably for political reasons) boosted US investments in T-bonds by quite a bit (forgot the number, but it was significant) even though they’ve complained about US’s risky fiscal budget.</p>

<p>Still, the total public debt is lower than the total GDP of the nation ($11 billion vs. $13-14 billion), so the federal gov’t is still safe … for now. If the risky spending keeps going on (aka with the expensive health plan that we obviously can’t afford), then the US they will be in trouble.</p>

<p>At least, that’s my opinion, because there are nations out there with much higher public debt vs. GDP ratios, namely Japan. (<a href=“http://en.wikipedia.org/wiki/File:PublicDebtTriade.PNG[/url]”>http://en.wikipedia.org/wiki/File:PublicDebtTriade.PNG&lt;/a&gt;)</p>